Deficit plan under pressure as December public borrowing rise puts UK AAA rating further at risk

The Government is borrowing more this year than last, official figures indicated today, knocking the Chancellor's deficit plans further off course and placing the UK's AAA status in peril.

Public sector net borrowing - the amount the Government spends over what it brings in through tax - was £15.4billion in December, compared to £14.8billion in December 2011.

The figure, published by the Office for National Statistics this morning, was ahead of the £15.2billion forecast by economists and comes at a time when the Government is trying to borrow less, not more, each month compared to previous years.

Making things add up: George Osborne, Chancellor of the Exchequer, will only get close to borrowing targets with the help of one-off windfalls - while VAT receipts from retailers provided a rare brighter spot in the data.

Public sector borrowing - otherwise known as the deficit - for the financial year to date is £106.5billion, excluding a one-off £28billion boost from the transfer of the Royal Mail pension fund into Treasury ownership. On this basis, the total borrowed in the year so far is 7.3 per cent higher than the £99.3 billion for the same point last year.

Chancellor George Osborne has been able to argue that the deficit is on track to be lower this year - a claim he made in the Autumn Statement - by including receipts from one-off events in the figures.

Public borrowing is officially expected to hit £80.5billion. However, this would include the Royal Mail pension cash which boosts Treasury coffers in the short-term but will increase state expenditure in future years.

Without that, borrowing is expected to be £108billion this year, lower than the £121.6billion last year. But even this number includes one-offs that will not be repeated in the future. £3.5billion is expected from an auction of 4G mobile frequencies and the transfer from the Bank of England of proceeds from the Asset Purchase Facility will bring in £11.5billion.

Without all these, borrowing this year would be £123billion - higher than last year.

The underlying picture in December was much the same as previous months with Government spending outstripping tax receipts. Total expenditure was up 5.4 per cent, with tax receipts up just 3.6 per cent in the month.

The graph shows borrowing already at the Government's forecast for the whole financial year - but one-off items will push the total lower.

Martin Beck, UK economist at consultancy Capital Economics, said December's public finance figures confirmed that the Government's fiscal consolidation plans were still off track.

He expects borrowing for 2012/13 to come in around £5billion above target.

Nida Ali, economic advisor to the Ernst & Young ITEM Club, said: 'There is good news and bad news in the breakdown of revenues and spending as well. For instance, revenues on VAT increased by almost 5 per cent on a year ago, which is stronger than expected given that retail sales in December were quite weak. On the flip side, the rate of increase in central government’s overall spending far outpaced the increase in tax revenues.'

Victoria Clarke from Investec said the Government may struggle to hit its targets even including the one-off windfalls. She said: 'These additional ‘one-offs’ should help the Chancellor get closer to the OBR 2012/13 forecasts, but we still view an overshoot as likely.

'On a month to month basis both the borrowing and revenue figures that comprise the public finances are volatile. But we are becoming increasingly nervous about the trend in the spending figures which shows an increasing pace of growth in current spending since last summer.'

'With Budget 2013 now less than two months away Mr Osborne may well be scratching around for some more "one-offs", keen to massage the deficit and debt numbers.'

More bad news on the UK economy is expected this week with the Office for National Statistics due to reveal that output contracted in the final quarter of 2012. All three of the major credit ratings agencies now have the UK's AAA rating on negative outlook.

ING economist James Knightley said: 'The question is how long the UK can hold on to its AAA status.

'With the US and France having been downgraded by one ratings agency in the past couple of years, another disappointing UK borrowing number and a widely expected contraction in GDP on Friday will intensify the threat of the UK suffering the same fate.'

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Deficit plan under pressure as December public borrowing rise puts UK AAA rating further at risk